Frontier research finds government support for business innovation has positive impacts on firm performance

The Department for Business, Energy and Industrial Strategy (BEIS) has today published research by Frontier examining the impact of public funding for private sector innovation on later business performance. The work, commissioned by BEIS and Innovate UK (the UK’s innovation agency), finds robust evidence that innovation support helps firms to survive longer and boosts employment.

The findings relate to innovation support provided by two organisations: Innovate UK, mostly in the form of grants for business R&D; and the National Measurement System (NMS), mostly in the form of subsidised contract research and access to measurement services. Each provided data on the firms they had supported between 2008 and 2012, which was matched to administrative data on firm performance measured in terms of employment and turnover. Econometric methods were used to compare trends in performance for supported firms and similar non-supported firms, to isolate the impact of the innovation support on performance.

Some of the main conclusions of the study are that:

Innovation support increases the probability that firms remain in business after three years by around 11 percentage points – almost all supported firms, in fact, remain in business

Innovation support also increases headcount employment by around 10 to 15% in the two- to four-year period after support begins

There are also positive effects on turnover looking two to four years after support (10-25% for Innovate UK support, 0-10% for NMS support), but these are not always statistically significant

The impact on survival may bias the turnover and employment results – but it is not clear in what direction, and the size of the bias would have to be very large to invalidate the positive effects found

The results particularly reflect the impact on SMEs – the approach taken was less suited to large firms where it can be difficult to find suitable non-supported comparator businesses

Frontier’s study contributes to a growing evaluation literature on the impact of public innovation support on businesses. It comes shortly after the publication of the Industrial Strategy green paper and the Spring Budget which announced £270 million in 2017 and 2018 for the first wave of ‘Challenge Fund’ support to help develop disruptive technologies.

Frontier regularly evaluates the impact of government policy on innovation, growth and productivity.